New York Federal Reserve News Agency: Finally, the Federal Reserve is going to discuss interest rate cuts, very likely in September!

After maintaining a high interest rate for over a year, the Federal Reserve will begin paving the way for rate cuts.

This Thursday, the Federal Reserve will announce its interest rate decision. Renowned financial journalist Nick Timiraos, known as the "New Fed News Agency," believes:

Although it is unlikely that the rates will be adjusted at the upcoming meeting, this meeting will undoubtedly be the most influential one in the near future.

As inflation pressures gradually ease and the labor market shows signs of cooling, Federal Reserve officials will weigh various factors at this week's meeting.

The market generally expects that while the possibility of a rate cut in July is small, officials will signal a rate cut after the meeting to prepare for a policy shift in September.

For a long time, Federal Reserve Chairman Powell has been weighing the risks of cutting rates too early or too late, and now the changing economic situation seems to support taking action earlier. Timiraos stated that the recent preparations for a rate cut by the Federal Reserve reflect three factors: improvement in inflation, signs of cooling in the labor market, and a changing consideration of the risks of allowing inflation to remain at high levels and causing unnecessary economic weakness.

Continuous Improvement in Inflation

Continuous improvement in inflation data is one of the key factors driving the Federal Reserve's change in attitude.

The latest data shows that the core CPI, excluding food and energy, has significantly decreased from 4.3% a year ago to 2.6% in June, a sharp drop from the peak of 5.6% two years ago.

New York Federal Reserve Bank President Williams stated:

The widespread and sustained decline in inflation, and he believes that the "last mile" of inflation is not as tricky as it seems, different inflation indicators are moving in the right direction and are quite consistent.

Cooling Labor Market

Signs of a cooling labor market also provide the Federal Reserve with more policy flexibility.

The unemployment rate has slightly increased from 3.7% at the end of last year to 4.1% in June, mainly due to a slowdown in hiring activities and longer job search times for job seekers. This trend limits the ability of workers to negotiate significant wage increases, thereby easing inflation pressures.

Powell recently pointed out that the labor market is no longer a source of broad inflation pressure, indicating that the Fed's major concern about inflation rebound has diminished.

Federal Reserve Governor Christopher Waller is one of the most positive supporters of this argument, stating in a recent speech:

Currently, the labor market is in its best state, and we need to keep the labor market in this optimal state.

Changing Risk Considerations

Furthermore, Timiraos believes that the risk management considerations faced by Federal Reserve officials are also changing, from concerns about rising inflation risks to concerns about rising unemployment rates.

Chicago Federal Reserve Bank President Evans emphasized:

The current interest rate level was set when inflation exceeded 4%, but now inflation has dropped to around 2.5%. This means that the actual tightening of monetary policy has significantly increased. There is no need to maintain such high restrictive interest rate levels when there are no signs of the economy overheatingSan Francisco Federal Reserve Bank President Daly warned:

If you do not cut interest rates promptly when the labor market begins to decline, it will be very difficult to get the economy back on track, which is completely different from starting to raise interest rates slowly two years ago.